GEN-I has entered the natural gas market

6. June 2012

The first contract to supply natural gas at considerably lower prices signed with Paloma

Large business consumers of natural gas in Slovenia have been warning for some time now that the unreasonably high gas prices have put them in a disadvantaged position compared to competitors in other countries, where the free choice of suppliers is not just a law on paper but is actually practiced. This year, many 5-year supply contracts that customers have signed with Geoplin, the dominant supplier in Slovenia, are about to expire and the market is finally opening up. GEN-I, the company that has become the largest electricity supplier in just a few years, enables business customers to sign gas supply contracts with more flexible terms and, most importantly, at lower prices.

The first customer to opt for gas supplies at prices that match European market prices as offered by GEN-I is Paloma d.d. According to Dejan Paravan, the executive director responsible for sales at GEN-I, Paloma chose to sign a contract after comparing GEN-I’s prices and supply terms. The way the market has worked so far, Paloma – like many other large consumers – had no other choice but to accept long-term gas supply contracts for 5 or even 10 years, and at prices that were far from competitive. “We have offered them prices that are more than a quarter below the prices they are paying now,” said Mr Paravan.

As agreed in the contract just signed between GEN-I and Paloma, GEN-I will supply the company with 20 million standard cubic meters of natural gas in the period from 1 October 2012 until the end of 2013, covering all of its natural gas needs. The contractual quantity represents 1.6% of the total natural gas consumption in Slovenia.

GEN-I is able to offer lower prices by purchasing natural gas on the international market. The company purchases natural gas at prices which are formed based on supply and demand on European energy exchanges, independent of oil prices which affect the price of natural gas purchased in Russia by Geoplin, currently the largest supplier in Slovenia. While the prices of natural gas in the EU remained largely unchanged in the past two years due to lower economic activity in the region, oil prices rose sharply, resulting in a sharp increase in those prices of natural gas that are tied to oil prices.

By accessing natural gas trading hubs in Central Europe and by purchasing gas in the right moment thanks to its analytical approach, GEN-I is able to offer better prices and maintain them for its customers in the long term. Considering that many experts predict a continued trend of high oil prices, it is unreasonable from a cost point of view to remain bound by contracts whose prices are tied to oil prices. According to Dejan Paravan, GEN-I offers its customers not only lower prices but also products that enable them to better manage their procurement costs. The company is able to provide this thanks to Mr Paravan’s many years of experience in developing products and services on the highly competitive electricity market, which he has now applied to the natural gas market.

GEN-I is the first independent natural gas supplier in Slovenia. Its offer is not reliant on Geoplin, the company which until now has been supplying both its own customers and all other local suppliers in Slovenia. “Our entry into the natural gas market is of crucial importance for the actual liberalization of this market,” says Robert Golob, the president of GEN-I’s management board. “As long as the only option for customers was to sign long-term contracts at prices that were beyond control, they simply did not have the freedom to choose their suppliers, even though a complete liberalization of the natural gas market was formally introduced on 1 July 2007. On such a market, where there was effectively an oligopoly, market participants were obviously not equal. Our entry into this market is the first step towards creating a truly competitive environment.”

Martin Novšak, member of GEN-I’s management board, points out that the entry of an independent supplier into the natural gas market will increase the competitive strength of the Slovenian economy. “Many Slovenian companies have been warning that better prices of natural gas and the associated services are of vital importance for the Slovenian economy, calling on the government to act. Higher natural gas prices have had an adverse effect on their competitive position. GEN-I’s different approach finally enables large customers to purchase natural gas in Slovenia at prices that match those in the rest of Europe," says Mr Novšak.

GEN-I’s management emphasizes that increased competition means the development of better services for customers. In the energy sector, these services are mainly associated with cost management and hedging against risks. GEN-I has already developed a number of similar services for electricity purchases. By developing the business infrastructure necessary for participation on the international natural gas market and by increasing the number of customers who choose GEN-I, the company plans to direct its expertise and analytical efforts into the development of more complex services for business customers in the natural gas segment.

Natural gas is a strategic energy source for the EU, especially considering its role in the creation of a low-carbon society. Although natural gas is a fossil fuel, it has low specific emissions of greenhouse gases. Experts estimate that demand for natural gas will increase in the future, and the EU has plans to invest heavily in the necessary infrastructure. The key factor for the future development of natural gas use, both in Europe and in Slovenia, is its price competitiveness. GEN-I’s entry into the natural gas market is therefore an important step towards achieving this goal.